selecting an open mep employers due diligence checklist - Fi360

SELECTING AN OPEN MEP 1EMPLOYERS DUE DILIGENCE CHECKLISTPREPARED BYCHARLES G. HUMPHREY, ESQ.*Does Employer Understand?1 Employer will not be relieved of allfiduciary liability under ERISA2 Tax qualification of entire plan may beaffected by problems of otheremployers3 Service by employees with MEPemployers is counted for eligibility andvesting4 Discrimination rules apply onindividual employer-by-employer basis5 Employer will be able to establish itsown eligibility, vesting andcontribution provisions6 Plan assets are not segregated on anemployer-by-employer basisImpact on Current Structure7 Will you have to change your existingplan features?8 If you wish to retain your currentadviser within an MEP arrangement,are they adviser-friendly, holdingthemselves accountable and transparentto the adopter’s adviser?Provider Experience andSupport9 How long have the parties to the MEPbeen involved with MEPs?10 What are the credentials and MEPexpertise of the various partiesCommentAdoption of MEP itself by an employer is not a fiduciary function,but selection of MEP sponsor and responsibility for monitoring ofthe MEP provider is.Disqualification of plan can lead to loss of deductions forcontributions to the plan, income taxation of trust earnings andtaxable income to participants; impact moderated by IRSEmployee Plans Correction Resolution System (EPCRS).Not likely to be a significant factor in terms of decision toparticipate in the MEPThis includes coverage and average deferral percentage andaverage contribution percentage testingThis puts employer in same position it would be in if it adopted itsown plan, but without some of the other drawbacks associatedwith individual sponsorship.It is theoretically and practically possible that plan assetsattributable to the contributions one employer could be used forthe benefit of another employer’s employees.Some MEPs may not have sufficient flexibility in their terms toaccommodate your current plan design. Careful review of yourplan against MEP is necessary before adopting the MEP.1 An Open MEP is a single plan sponsored by an independent plan sponsor covering employees of a number of unrelatedemployers under a centralized administrative and fiduciary structure.“The first rule for fiduciaries is to put their interests last.”BOSTON | GREAT LAKES | LOS ANGELES | NASHVILLE | NEW YORK METRO | TAMPA | WASHINGTON, D.C.(o) 888.918.8386 www.fiduciaryplangovernance.com (f) 978.225.8398© Fiduciary Plan Governance, LLC 2012.

involved with the MEP?11 Is there an ERISA attorney advising theMEP and maintaining the plandocument? If so, what is theirbackground specific to MEPs?Plan Documentation12 Consists of basic plan document andjoinder agreementUsing the joinder or participation agreement the adoptingemployer will elect the specific eligibility, vesting andcontributions that will apply to its employees.13 Plan Administrator identified Generally the plan sponsor/provider or the provider’s advisorycommittee who will be responsible for most the plan’sadministrative functions such as coverage and discriminationtesting, annual reporting, hiring of service providers, andnotifications to participants.14 Named Fiduciary identified Generally the plan sponsor/provider or the provider’s advisorycommittee who will be responsible for the selection andmonitoring of plan investments and investment advisers.Basic MEP Structures15 Plans operated by third partyadministrators (TPAs)16 Plans operated by registered investmentadvisors (RIAs)17 Plans operated by independent plansponsorsSelf-Dealing and ProhibitedTransactions18 Is there a proper separation of the rolesand ownership structure of the MEP’splan sponsor, independent fiduciary,and contracted service providers?19 How are all of the parties paid? Arethere potential conflicts of interest orprohibited transactions?The providers operating MEPs described in lines 15-17 arefiduciaries and may not use that authority to benefit themselves ortheir affiliates, to determine their own compensation or paythemselves out of plan assets20 Does provider have any ability todetermine its own compensation or topay its affiliates additionalcompensation?Reasonableness ofCompensation21 What is the amount of compensationpaid to the provider and other serviceunder the arrangement? Is itIf the proposed arrangement has such a feature, the arrangementmust be rejected.Services provided to a plan by service providers are subject toERISA Section 408(b) (2) which requires that no more thanreasonable compensation be paid for them.The employer should seek information from the provider aboutfees and compare that information to the fees charged by otherproviders offering similar services. This is often called“The first rule for fiduciaries is to put their interests last.”BOSTON | GREAT LAKES | LOS ANGELES | NASHVILLE | NEW YORK METRO | TAMPA | WASHINGTON, D.C.(o) 888.918.8386 www.fiduciaryplangovernance.com (f) 978.225.8398© Fiduciary Plan Governance, LLC 2012.

easonable?Plan Administration andFiduciary Structure22 Who is handling the administration(TPA) work, fiduciary oversight, andplan operations?23 Does the provider have written policiesand procedures?24 If the answer is, yes, have thosepolicies and procedures been audited orcertified by an entity independent of theprovider?Fiduciary Liability Insuranceand Related Liability Items25 Does the Employer maintain fiduciaryliability insurance?26 Has the provider, within the last fiveyears, been sued or settled claims byemployers in connection with theprovision of services under the MEP?27 Has the Plan, within the last five years,been audited by the IRS or LaborDepartment? If so, what were thefindings/results?28 Is the provider willing to provide youreferences and contact information foremployers who currently or formerlyparticipated in the plan?29 Has the provider used the IRS EPCRSprogram or the Labor DepartmentDelinquent Filer or FiduciaryCorrection Program within the last fiveyears to correct problems with theoperation of the plan?Employer Responsibilities30 Provision of Eligibility data such asdates of hire, birth dates, and hours ofservice to the provider.31 Have appropriate arrangements beenmade for the transfer of payroll data?Do the compensation data codes alignwith the definitions of compensation inthe Plan?32 Employers have responsibility totransfer salary deferral amounts takefrom pay as soon as those amounts canreasonably be segregated from planassets.“benchmarking.”Employers considering adopting a MEP must assess whether theprovider can do the job.If none are in place, the employer should look for anotherprovider.Evidence of certification shows that the provider is serious aboutits business and intends to apply the highest standards in planoperations.The employer will want to know the amount and the carrier.The employer must timely provide accurate information to theMEP provider. This is a responsibility the adopting employerwill not escape under any arrangement.The transmittal of correct compensation information can haveserious implications as it affects the amount of contributions anddiscrimination testing.The failure to satisfy this requirement can result in a prohibitedtransaction and the imposition of excise taxes on the employer.“The first rule for fiduciaries is to put their interests last.”BOSTON | GREAT LAKES | LOS ANGELES | NASHVILLE | NEW YORK METRO | TAMPA | WASHINGTON, D.C.(o) 888.918.8386 www.fiduciaryplangovernance.com (f) 978.225.8398© Fiduciary Plan Governance, LLC 2012.

33 Clarification of responsibility for othertasksPlan Investments34 Responsibility for maintenance of planinvestment policy statement (IPS)35 Any responsibility in employer forselecting plan’s investment line-up?ParticipantEducation/Investment Advice36 Who is responsible for educatingparticipants?37 Will individualized investment advicebe provided to participants, usingmodel or level fee arrangement?Reporting to the Employer bythe ProviderBecause ERISA and the Internal Revenue Code impose importantdisclosure requirements on employers and plan administrators,employers must know what, if any, responsibilities they have.These, to name a few, include the provision of SPDs, QDIA andother notices. Which of these responsibilities will be performed bythe provider?Does the provider maintain an IPS? What does it say?Depending on the arrangement, the employer could have someexposure to liability for plan investments.Is it the provider, a broker or someone else? How frequently willthere be group meetings? What is the level of commitment?Does the arrangement comport with Labor Department rules, sothat self-dealing prohibited transactions are avoided?Although adopting a MEP relieves employers of operationalresponsibilities, employers have oversight and monitoringresponsibilities. Thus, they must have reports from the providerregarding plan operations.38 Annual Reports Annually the provider should provide to the employer informationrelating to (i) plan investments (ii) fees; (iii) plan amendmentsmade during the year; (iv) any significant problems with planservice providers or in the administration of the plan (v) anysignificant issues identified by the plan’s auditor and (vi)participation and plan design improvement reports..39 Additional Reports Any other report to the employer that the employer may need in itscapacity as participating employer including any informationneeded to protect itself from liability in regard to the plan orcorrect a problem. Timely provided ADP and ACP discriminationtesting results is an example. A copy of the MEP’s Form 5500annual information return should also be provided.Getting Out40 Does the MEP plan document reservethe participating employer the right tospin off assets?41 Can the provider throw you out of theMEP; for what reasons; under whatterms?42 What fees will provider charge whenthe employer leaves the MEP?At some point an adopting employer will want to terminate theplan as to itself or establish its own plan and move MEP assets tothat plan. What will happen at that time should be known prior toparticipating in the MEP.Knowing the answer to this question will be important when theemployer decides to completely stop offering 401(k) benefits.This information is valuable for two reasons: (i) you will know inadvance under what circumstances this could happen and (ii) it isimportant to know that employers with compliance problemsthreatening the overall plan can be removed from the plan.This factor is an aspect of your “reasonableness of the fees”assessment.Contractual43 Do the provider contracts have any Current Labor Department guidance does not outright prohibit“The first rule for fiduciaries is to put their interests last.”BOSTON | GREAT LAKES | LOS ANGELES | NASHVILLE | NEW YORK METRO | TAMPA | WASHINGTON, D.C.(o) 888.918.8386 www.fiduciaryplangovernance.com (f) 978.225.8398© Fiduciary Plan Governance, LLC 2012.

limitation of liability or indemnificationprovisions?such provisions, but it does require plan fiduciaries to determinetheir reasonableness in the context of the arrangement.44 Remedies/ compensation available toemployer in event provider fails tomaintain the qualification of the plan45 Who pays expenses of correctingoperational errors?46 Representation that fiduciary liabilityinsurance will be maintained47 Representation that the security andconfidentiality of personal informationwill be maintained under State privacylaws.Documents to Request fromProvider Prior to Adoption ofMEP48 Plan document and joinder agreement49 Plan policies and procedures50 Investment Policy Statement51 Annual Returns (last three years)Getting Help52 If you do not have the in-houseexpertise to address the matters in thischecklist, have you considered gettingWhen the operational error relates only to a particular employer,do other employers share in the cost of fixing the problem or is thecost shared among all employers? What if the error is theproviders or is a service provider to the MEP hired by theprovider?An independent adviser or consultant, whose fees do not dependon whether or not your company joins the MEP, can help youassess the MEP arrangement and the reasonableness of fees andfulfill your fiduciary responsibilities.outside help?53 Have you retained ERISA counsel? Review of plan documents and agreements by an attorney is a bestpractice.**************************************Charles G. Humphrey is the principal of Law Offices of Charles G. Humphrey, an ERISA and employee benefitslaw firm located in Andover, Massachusetts and Buffalo, New York. He is also a special consultant to Fiduciary PlanGovernance Plan Governance, LLC, a fiduciary consulting firm dedicated to improving employee benefit planprocesses and reducing fiduciary liability.“The first rule for fiduciaries is to put their interests last.”BOSTON | GREAT LAKES | LOS ANGELES | NASHVILLE | NEW YORK METRO | TAMPA | WASHINGTON, D.C.(o) 888.918.8386 www.fiduciaryplangovernance.com (f) 978.225.8398© Fiduciary Plan Governance, LLC 2012.

“Multiple” ChoiceMultiple Employer Plans—an enticing alternative for plan sponsorsTerrance PowerCFP, QPA, ERPA, AIFA, APR, CLU, ChFCPresidentAmerican Pension Services, Inc.AN INTRIGUING new use of a long-establishedconcept is catching the attention ofsmall to mid-size plan sponsors seekinga way to simplify 401(k) plan oversight:Multiple Employer Plans (MEPs). Bymerging their plan into a properly structuredMEP, employers cease to be a plansponsor and effectively transfer many ofthe responsibilities and liabilities associatedwith being a named fiduciary to theMEP.The MEP concept is exploding in popularity.Established under ERISA 413(c),MEPs historically have been used bycompanies that share a common industryor payroll provider, primarily associationplans and professional employer organizations(employee leasing). However,as interest in outsourced fiduciary solutionshas grown in recent years, a newgeneration of “open” MEPs for unrelatedcompanies has sprung up. While MEPscan deliver tremendous benefit to manyplan sponsors, an MEP is a solution insearch of a problem for others. This articleis written to help plan sponsors determineif this approach is a good fit for theirorganization.An MEP (not to be confused with a multiemployer,or Taft Hartley, plan) is a retirementplan established by one plan sponsorthat is then adopted by one or more participatingemployers. When an employermerges its current single-employer planinto a properly structured MEP, the roleof plan sponsor then transfers from theadopting employer to the plan sponsor ofthe MEP.The MEP sets up a single plan that coversall adopting employers, with the plandocument generally written to allowfor variation in plan design among theparticipating companies. Fund selectionand monitoring generally are handled bythe MEP. Discrimination testing and plandesign (with some limitations) generallyremain with the adopting employer.The shift in responsibility results in severalpotential benefits:Elimination of annual plan audit. Plansthat cover more than 100 employees typicallyare required to have an annual planaudit performed as part of their annualplan Form 5500 filing. Under the MEParrangement, there is still a plan audit,but only one that is performed at theoverall MEP level. The annual audit thatis required by each employer (now knownas an “adopter”) is eliminated, resulting insignificant savings to the employer.Mitigation of fiduciary risk. Indepen-Selecting a MultipleEmployer PlanQuestions to ask:Will you have to change your existingplan features?Who is handling the administration(TPA) work, fiduciary oversight, andplan operations?What are the credentials and MEPexpertise of the various parties involvedwith the MEP?How long have the parties to the MEPbeen involved with MEPs?Is there an ERISA attorney advising theMEP and maintaining the plan document?If so, what is their background specific toMEPs?How are all of the parties paid? Are therepotential conflicts of interest or prohibitedtransactions?If you wish to retain your current adviserwithin an MEP arrangement, are theyadviser-friendly, holding themselvesaccountable and transparent to theadopter’s adviser?Is there a proper separation of the rolesand ownership structure of the MEP’splan sponsor, independent fiduciary, andcontracted service providers?What measures does the MEP taketo screen out “bad apples” that couldaffect the entire MEP? Does the MEPcontract allow them to unilaterally push outadopters with compliance problems?REPRINTED FROM PLANSPONSOR 8/11

dent fiduciary W. Michael Montgomerydescribed the impact on fiduciary liabilitiesin Multiple Employer Plans as a FiduciaryRisk Mitigation Tool:“Employers adopting a sound MultipleEmployer Plan…achieve a profoundreduction in fiduciary risk exposure. Thereason is a simple one: The adoptingemployer ceases to perform certain keyroles that incur fiduciary status. Whenan employer merges its current singleemployerplan into a properly structuredMEP, it is no longer the sponsor of theplan. It also should cease to be a trustee,plan administrator, or any sort of namedfiduciary. Those central roles move to theMEP, and the inherent fiduciary liabilitytransfers with them.”The relief offered by MEP participation isextensive but not total. Certain responsibilitiesgenerally remain with the adoptingemployer, and even this reduced role mustbe taken seriously.Those responsibilities include:plan contributions.of match.MEP, including necessary due diligenceand monitoring of the MEP.notices and information, though thismay at times be handled directly by theMEP plan sponsor. tancefor participants.Streamlining of plan operations. Inaddition to the audit elimination, MEPadopting employers no longer file a Form5500, maintain a fidelity bond, or shoulderthe responsibility for 408(b)(2) compliance.These are handled by the plan sponsorthat is associated with the MEP, not theadopting employer. For some employers,this benefit is inconsequential. For others,the desire to let outside experts run theplan can be more important than eitherthe audit relief or fiduciary risk mitigation.MEPs are not a good fit for every employer.Some plan sponsors already are mitigatingtheir fiduciary exposure through a comprehensive,well- documented fiduciaryprocess. Others don’t consider the cost oreffort of an annual audit to be significantenough to justify making a change. Stillothers take satisfaction in staying engagedin plan oversight and fund monitoring.Simply put, if the advantages of an MEPappear to be solving a problem you don’thave, this approach is not for you.An employer also should consider thepotential limitations inherent in mostMEPs. These may include the following:its own fund menu. For many, thisis a relief. Others want to have moreinvolvement in investment decisionsand consider this a takeaway.some MEPs offer a degree of flexibility,most are tied to a single recordkeeperor third-party administrator, so youwill most likely have to leave behindyour current providers to enjoy thebenefits of adopting an MEP.one adopting employer with seriouscompliance violations could cause theentire MEP to be disqualified, thougha more likely scenario is that correctivemeasures will be taken. In the 20-plusyears that I’ve been associated withMultiple Employer Plan clients, I’ve yetto see this occur. It is important thatemployers confirm the availability of a“disgorgement provision” in any MEPthat they may be considering. Thisimportant plan design feature allowsthe MEP to quickly eject and therebyisolate any noncompliant adopter fromthe plan.If these features are appealing and thelimitations are acceptable, you may wantto look further into the Multiple EmployerPlan approach as a solution to yourcompany’s retirement plan strategy.I’ve been told by plan sponsors that theydecided to join an MEP because theseprograms are handled the same way astheir other employee benefit programs,where the benefit providers handle all thedetails. For example, while an employercould, at least in theory, negotiate withdoctors, hospitals, MRI service providers,pharmacies, etc., for their employees’medical coverage, most find it easier tooutsource these micro-managed decisionsto a third party—in that case, a healthinsurance provider that offers a grouphealth-care policy.There is a trade-off in control, options,etc., but there also is comfort in knowingthat there are professionals at the helmand that they have a vested interest inmaking sure that their employees aretaken care of in accordance with the termsof the arrangement.Plan sponsors and their advisers will, ofcourse, need to determine on a caseby-casebasis whether these programsare a “fit” for their plans and their planparticipants.American Pension Services, Inc., is an independent third-party retirement plan administration firm located in Clearwater, Florida. APShandles the compliance and testing associated with qualified retirement plans (primarily 401(k) plans) for small to medium-size employers,as well as for numerous Professional Employer Organizations (PEOs) located across the country.REPRINTED FROM PLANSPONSOR 8/11 ©1989-2011 Asset International, Inc. All Rights Reserved. No reproduction or redistribution without prior authorization.For information, call (203) 595-3276 or email reprints@plansponsor.com

SELECTING AN OPEN MEP 1EMPLOYERS DUE DILIGENCE NUTSHELLCHECKLISTPREPARED BYCHARLES G. HUMPHREY, ESQ.*Does Employer Understand?1 Employer will not be relieved of allfiduciary liability under ERISA2 Tax qualification of entire plan may beaffected by problems of otheremployers3 Service by employees with MEPemployers is counted for eligibility andvesting4 Discrimination rules apply onindividual employer-by-employer basis5 Employer will be able to establish itsown eligibility, vesting andcontribution provisions6 Plan assets are not segregated on anemployer-by-employer basisImpact on Current Structure7 Will you have to change your existingplan features?8 If you wish to retain your currentadviser within an MEP arrangement,are they adviser-friendly, holdingthemselves accountable and transparentto the adopter’s adviser?Provider Experience andSupport9 How long have the parties to the MEPbeen involved with MEPs?CommentAdoption of MEP itself by an employer is not a fiduciary function,but selection of MEP sponsor and responsibility for monitoring ofthe MEP provider is.Disqualification of plan can lead to loss of deductions forcontributions to the plan, income taxation of trust earnings andtaxable income to participants; impact moderated by IRSEmployee Plans Correction Resolution System (EPCRS).Not likely to be a significant factor in terms of decision toparticipate in the MEPThis includes coverage and average deferral percentage andaverage contribution percentage testingThis puts employer in same position it would be in if it adopted itsown plan, but without some of the other drawbacks associatedwith individual sponsorship.It is theoretically and practically possible that plan assetsattributable to the contributions one employer could be used forthe benefit of another employer’s employees.Some MEPs may not have sufficient flexibility in their terms toaccommodate your current plan design. Careful review of yourplan against MEP is necessary before adopting the MEP.1 An Open MEP is a single plan sponsored by an independent plan sponsor covering employees of a number of unrelatedemployers under a centralized administrative and fiduciary structure.“The first rule for fiduciaries is to put their interests last.”BOSTON | GREAT LAKES | LOS ANGELES | NASHVILLE | NEW YORK METRO | TAMPA | WASHINGTON, D.C.(o) 888.918.8386 www.fiduciaryplangovernance.com (f) 978.225.8398© Fiduciary Plan Governance, LLC 2012.

10 What are the credentials and MEPexpertise of the various partiesinvolved with the MEP?11 Is there an ERISA attorney advising theMEP and maintaining the plandocument? If so, what is theirbackground specific to MEPs?Self-Dealing and ProhibitedTransactions12 Is there a proper separation of the rolesand ownership structure of the MEP’splan sponsor, independent fiduciary,and contracted service providers?13 How are all of the parties paid? Arethere potential conflicts of interest orprohibited transactions? Does providerhave any ability to determine its owncompensation or to pay its affiliatesadditional compensation?Reasonableness ofCompensation14 What is the amount of compensationpaid to the provider and other serviceunder the arrangement? Is itreasonable?Plan Administration andFiduciary Structure15 Who is handling the administration(TPA) work, fiduciary oversight, andplan operations?16 Does the provider have written policiesand procedures?Fiduciary Liability Insuranceand Related Liability Items17 Does the Employer maintain fiduciaryliability insurance?18 Has the provider, within the last fiveyears, been sued or settled claims byemployers in connection with theprovision of services under the MEP,been subject to a government audit orfiled under an IRS or DOL correctionprogram?Employer ResponsibilitiesServices provided to a plan by service providers are subject toERISA Section 408(b)(2) which requires that no more thanreasonable compensation be paid for them.The employer should seek information from the provider aboutfees and compare that information to the fees charged by otherproviders offering similar services. This is often called“benchmarking.”Employers considering adopting a MEP must assess whether theprovider can do the job.If none are in place, the employer should look for anotherprovider.The employer will want to know the amount and the carrier.“The first rule for fiduciaries is to put their interests last.”BOSTON | GREAT LAKES | LOS ANGELES | NASHVILLE | NEW YORK METRO | TAMPA | WASHINGTON, D.C.(o) 888.918.8386 www.fiduciaryplangovernance.com (f) 978.225.8398© Fiduciary Plan Governance, LLC 2012.

19 Provision of Eligibility data such asdates of hire, birth dates, and hours ofservice to the provider.20 Employers have responsibility totransfer salary deferral amounts takefrom pay as soon as those amounts canreasonably be segregated from planassets.Plan Investments21 Responsibility for maintenance of planinvestment policy statement (IPS)22 Any responsibility in employer forselecting plan’s investment line-up?Participant Enrollment,Education/Investment Advice23 Who is responsible for enrolling andeducating participants? Is investmentadvice provided?Reporting to the Employer bythe ProviderThe employer must timely provide accurate information to theMEP provider. This is a responsibility the adopting employerwill not escape under any arrangement.The failure to satisfy this requirement can result in a prohibitedtransaction and the imposition of excise taxes on the employer.Does the provider maintain an IPS? What does it say?Depending on the arrangement, the employer could have someexposure to liability for plan investments.Is it the provider, a broker or someone else? How frequently willthere be group meetings? What is the level of commitment?Although adopting a MEP relieves employers of operationalresponsibilities, employers have oversight and monitoringresponsibilities. Thus, they must have reports from the providerregarding plan operations.24 Annual Reports and Other Reports Annually the provider should provide to the employer informationrelating to (i) plan investments (ii) fees; (iii) plan amendmentsmade during the year; (iv) any significant problems with planservice providers or in the administration of the plan (v) anysignificant issues identified by the plan’s auditor and (vi)participation and plan design improvement reports. What aboutperiodic reports as required?Getting Out25 Does the MEP plan document reservethe participating employer the right tospin off assets?26 What fees will provider charge whenthe employer leaves the MEP?Contractual27 Do the provider contracts have anylimitation of liability or indemnificationprovisions?At some point an adopting employer will want to terminate theplan as to itself or establish its own plan and move MEP assets tothat plan. What will happen at that time should be known prior toparticipating in the MEP.Knowing the answer to this question will be important when theemployer decides to completely stop offering 401(k) benefits.This factor is an aspect of your “reasonableness of the fees”assessment.Current Labor Department guidance does not outright prohibitsuch provisions, but it does require plan fiduciaries to determinetheir reasonableness in the context of the arrangement.28 Remedies/ compensation available toemployer in event provider fails tomaintain the qualification of the plan29 Who pays expenses of correctingoperational errors?When the operational error relates only to a particular employer,do other employers share in the cost of fixing the problem or is thecost shared among all employers? What if the error is the“The first rule for fiduciaries is to put their interests last.”BOSTON | GREAT LAKES | LOS ANGELES | NASHVILLE | NEW YORK METRO | TAMPA | WASHINGTON, D.C.(o) 888.918.8386 www.fiduciaryplangovernance.com (f) 978.225.8398© Fiduciary Plan Governance, LLC 2012.

Representation that fiduciary liabilityinsurance will be maintainedGetting Help30 If you do not have the in-houseexpertise to address the matters in thischecklist, have you considered gettingproviders or is a service provider to the MEP hired by theprovider?An independent adviser or consultant, whose fees do not dependon whether or not your company joins the MEP, can help youassess the MEP arrangement and the reasonableness of fees andfulfill your fiduciary responsibilities.outside help?31 Have you retained ERISA counsel? Review of plan documents and agreements by an attorney is a bestpractice.**************************************Charles G. Humphrey is the principal of Law Offices of Charles G. Humphrey, an ERISA and employee benefitslaw firm located in Andover, Massachusetts and Buffalo, New York. He is also a special consultant to Fiduciary PlanGovernance Plan Governance, LLC, a fiduciary consulting firm dedicated to improving employee benefit planprocesses and reducing fiduciary liability.“The first rule for fiduciaries is to put their interests last.”BOSTON | GREAT LAKES | LOS ANGELES | NASHVILLE | NEW YORK METRO | TAMPA | WASHINGTON, D.C.(o) 888.918.8386 www.fiduciaryplangovernance.com (f) 978.225.8398© Fiduciary Plan Governance, LLC 2012.

MEP RELATED EXCERPTS FROM THE TESTIMONY OF PHYLLIS C. BORZIASSISTANT SECRETARY OF LABOR EMPLOYEE BENEFITS SECURITYADMINISTRATION BEFORE THE SPECIAL COMMITTEE ON AGING UNITEDSTATES SENATEMarch 7, 2012Introductory RemarksGood afternoon Chairman Kohl, Ranking Member Corker, and Members of the Committee.Thank you for inviting me to discuss small business retirement plan issues. I am Phyllis C. Borzi,the Assistant Secretary of Labor for the Employee Benefits Security Administration (EBSA). Iam proud to represent the Department of Labor (Department), EBSA, and its employees, whowork to safeguard retirement and other employee benefits for America’s workers, retirees andtheir families and to support the growth of our private benefits system. Secretary Solis’overarching vision for the Department is to advance good jobs for everyone, and a good job,among other things, is one that provides a secure retirement. We are committed to promotingopportunities and helping America’s workers to achieve a secure retirement.Helping workers to achieve a dignified and secure retirement means encouraging employers toestablish and maintain retirement plans and protecting workers’ benefits. We know we mustwork particularly hard to assist small businesses because of the challenges small businesses facein providing retirement plans. There are six million businesses with fewer than 100 employeesemploying 42 million workers.1 Less than half of these businesses offer a retirement plan.21 U.S. Small Business Administration, Office of Advocacy, based on data for 2008 provided bythe U.S. Census Bureau, Statistics of U.S. Businesses.2 U.S. Bureau of Labor Statistics, National Compensation Survey: Employee Benefits in theUnited States, March 2011, Bulletin 2771. Private Industry Tables. Table 1, Establishmentsoffering retirement and health care benefits. 2To expand access for workers to employer-based retirement plans, the Department has longrecognized that we need to reach out to the small business community. Employer-sponsoredplans are the best way for most workers to accumulate savings for a financially secureretirement. It is not easy for workers to save and invest so that they will be able to maintain theircurrent standard of living in retirement. According to experts, workers will need to replace 70 to90 percent of preretirement income.3 Therefore, we need to do all we can to assist smallemployers in establishing and operating retirement plans.

BackgroundEBSA is responsible for the administration, regulation, and enforcement of the fiduciary,reporting, and disclosure provisions of Title I of the Employee Retirement Income Security Actof 1974 (ERISA). EBSA assists small employers in evaluating their options for establishing aretirement plan and provides compliance assistance to help employers understand their fiduciaryand reporting responsibilities for employer-sponsored plans. We accomplish this throughcomprehensive education, outreach,4 and regulatory programs. ……..Multiple Employer PlansWhile it is clear from my testimony that the Department supports efforts to expand smallbusiness coverage, it is just as important that ERISA’s protections for workers’ pensions be 13maintained. In that regard, the Department has more recently become aware of promotersmarketing multiple employer plans, or “MEPs,” that do not involve collective bargaining with anemployee representative. These arrangements, often called “open MEPs,” purport to allow totallyunrelated businesses to join together to offer a collective pension plan. Promoters claim thatthese arrangements relieve businesses of their ERISA reporting and fiduciary obligations inconnection with administering the plan or monitoring the plan investments and service providers.Proponents say such arrangements can provide the participating employers with a way to poolresources and reduce administrative costs. There are several bills pending in Congress which callfor the Department, in coordination with the Treasury Department, to provide fiduciary relief andsimplified administrative, reporting and disclosure obligations for multiple employer plans. Weare currently analyzing these proposals.Under ERISA, employee benefit plans must be sponsored by an employer, by an employeeorganization, or by both. ERISA expressly recognizes the idea of a “multiple employer plan” byincluding in the definition of “employer” any “person acting directly as an employer, orindirectly in the interest of an employer, in relation to an employee benefit plan; and includes agroup or association of employers acting for an employer in such capacity.”For example, a MEP operated by a bona fide employer association or group of related employersis a well-established concept in ERISA. Such plans in fact can provide the participatingemployers with a way to pool resources and reduce administrative costs. The idea of “openMEPs,” however, is not an established concept in ERISA. Indeed, EBSA has had difficultexperiences with similar “open” employee benefit structures in the group health area. Thesearrangements, called “MEWAs,” or multiple employer welfare arrangements, can be provided 14

through legitimate organizations, but they sometimes are marketed using attractive, but unsound,organizational structures and generate large, often hidden, administrative fees for the promoters.In addition, certain promoters try to use ERISA’s general preemption of state laws as a way toavoid state insurance or other regulation. That fact, together with the claimed separation of theemployer from accountability for the plan’s administration, too often put workers at risk of notgetting the benefits they were promised. Bringing this type of product to the pension marketplacepresents a number of complicated and significant legal and policy issues. We understand that theGovernment Accountability Office is actively studying this development in the pensionmarketplace.We have also heard about this “open MEP” development from regulated financial institutions,including insurance companies and other financial service providers, who currently are allowedunder Internal Revenue Code rules to offer “prototype” plan products to employers. Theseprototype plans are another way to reduce legal and administrative costs of offering employees atax qualified pension plan. Some financial institutions have expressed reservations aboutdeveloping competing “open MEP” products. Their lawyers, based on a review of the manyDepartment of Labor opinions and other guidance on “open MEWAs,” have expressed concernsabout whether these “open” benefit arrangements can fairly be classified as a “single” plan asopposed to a collection of separate plans being collectively administered much like the prototypeplans they already offer. We have been informally asked to provide guidance in this area bysome of those groups, and we have two formal requests for guidance, one directly presenting theopen MEP issue and the other indirectly. We are actively working on answering these requests.15ConclusionThank you for the opportunity to testify at this important hearing. We recognize the challengessmall businesses face in providing retirement plans. As I noted, our partnerships from within thefederal government and among external stakeholders are a key component to these efforts todevelop and disseminate the information. We will continue to expand our efforts, payingparticular attention to feedback we receive from small businesses and their service providers, toprovide responsive, timely and comprehensive information and compliance assistance. TheDepartment recognizes the critical role that small businesses play in the economy as employers.The Department remains committed to initiatives which protect both the security and growth ofretirement benefits for workers, retirees, and their families.